Leading stocks acting well
The major averages
suffered a distribution day for Tuesday’s trading as they all closed
sharply lower on increased volume over Monday’s trading.
The major averages were due for a pullback after
they posted strong gains into the end of March and into early April. The indices
seemed to be mocking the Federal Reserve Board’s continual rate hikes and lack
of evidence that it will end anytime soon. Up until three days ago, the NASDAQ
and S&P 500 were trading at multi-year highs.
Leading stocks have also been acting well, but many names are quite extended
from proper buy points. Empire Resources (ERS), Joy Global (JOYG) and Hansen’s
(HANS) are examples of stocks that have enjoyed prolonged runs. Fortunately,
leadership has been rotational among groups among the medical industry to energy
to manufacturing and transportation. There have been plenty of new areas to park
money with hopes of strong returns.
The market appears to be undergoing a normal correction following the recent
move we had in the major indexes and leading stocks. This is a great time to
look for two things: opportunity and signs of more trouble. The latter is the
most important because it can really hurt a portfolio to remain aggressively
invested in a market that has topped. If we continue to see professional
selling, or distribution than it is time to raise cash. If leading stocks start
to fail around key areas of support like 50-day moving averages, then it is also
time to raise some cash.
BUT, if those two events do not occur it will literally PAY to have a watchlist
of solid set-ups to consider. Names like Netease (NTES) can be watched as it
holds support at its prior breakout point of 22.89.
Google (GOOG) and Apple (AAPL) are two former leaders that are starting to
re-gain their composure and show technical action that is very strong. These
stocks appear to be working the way up the right side of a base pattern.
The stock market remains in a healthy uptrend. It is worth locating
fundamentally strong individual stocks as well as paying attention to the daily
price and volume action of the major indexes. There is a good chance that we may
find ourselves in a situation similar to 2004 where the Fed stops hiking rates
and the stock market is free to advance.
Good Trading!
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